What is Section 179?
Section 179 of the IRS tax code allows businesses to deduct the full purchase price of qualifying equipment purchased or financed during the tax year. That means if you finance a piece of qualifying equipment, you can deduct the full purchase price from your gross income. This deduction is good on new and used equipment, including software. To take the deduction for tax year 2020, the equipment must be financed or purchased and put into service between January 1, 2020 and the end of the day on December 31, 2020. This deduction is not automatic and must be elected. All businesses that purchase, finance, and/or lease new or used business equipment during tax year 2020 should qualify for the Section 179 Deduction. Congress has stopped the Section 179 roller coaster of the past few years, and has made the Tax Deduction limit permanent. The limit is $1,000,000 for 2020 and beyond. This is great news for small and medium businesses, as they know early in the year that the deduction will be there for them.
Annual Deduction There are caps to the total amount written off ($1,000,000 for 2020), and limits to the total amount of the equipment purchased ($2,500,000 in 2020). The deduction begins to phase out on a dollar-for-dollar basis after $2,500,000 is spent by a given business.
What Property Qualifies in 2020? The equipment must be used for business purposes more than 50% of the time to qualify for the Section 179 Deduction. Simply multiply the cost of the equipment, vehicle(s), and/or software by the percentage of business-use to arrive at the monetary amount eligible for Section 179. Tangible Personal Property Under Section 179, you can deduct the cost of tangible personal property (new or used) that you finance for your business if the IRS has determined that the property will last more than one year. Examples of tangible personal property include computers, business equipment and machinery/heavy equipment, and office furniture.
What would be my total tax savings?
For example, if your business is in a 35% tax bracket and you are looking to purchase equipment totaling $75,000, your total tax savings would be $26,250. Thus making the net cost of the equipment $48,750. We always recommend that you contact your accountant or tax professional prior to make sure the equipment you are interested in is eligible for deduction and also see how much you can save.
If you are ready to move forward with a business equipment purchase, save yourself the hassle of the small business loan process. Here at Union Commercial Capital, we provide same day credit decisions and same-day funding is not uncommon. Don’t let your business miss out on some sizable tax write-offs. Put the Section 179 tax deduction – and Union Commercial Capital – to work for you.
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